VAT reforms could affect your company’s profitability

News Article - 19 November 2009
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VAT law is due to undergo significant reform on January 1st 2010. The most prominent change will be a shift from a basic rate of 15% - which was introduced last year to encourage spending – back to the previous rate of 17.5%. In a study conducted by Access, the reduction to 15% VAT rate cost UK businesses in the region of £470m, much of which was due to limited preparation. The increased complexity of additional changes to VAT rules could raise these costs considerably if planning is not undertaken in time.

In addition to the basic rate change, the Government is introducing a new Reverse Charge VAT on services, which will affect business-to-business transactions carried out within the European Union. Changes in the way the EC Sales List – used to report a member’s taxable trade – will also be implemented, including a revised format for electronic submission. These rules are complex, and will require substantial analysis of current businesses practices if they are to be absorbed with limited affect on profitability.

There are also signs that these will not be the last changes to VAT legislation introduced in 2010. In April most businesses will be obliged to submit their VAT 100 forms electronically. In addition, there has been growing talk of reforming VAT rates to make sustainable goods more attractive. As the green movement gains traction, this may become ever more likely.

Access is advising UK businesses to start preparing for the VAT changes as early as possible. In last year’s survey 15% of respondents needed between 1 and 2 business days to prepare for the changes, which came into effect on December 1st. 12% were still addressing the issue in January 2009. Most businesses needed more time than they first envisaged, and considering the complexity of the new reforms, this may well be the case again.

One of the best ways you can help your company is to ensure your business and accounting software addresses these legislative changes. Access will provide customers with an upgrade for Access Dimensions at the end of November to meet HMRC requirements. By installing this prior to December 31st, your business is in a strong position to adapt smoothly to the reforms. With the promise of more extensive VAT reforms to come you should contact your software provider now to ensure your solution remains up-to-date. That way you avoid the downtime and profitability dips that have been historically associated with VAT reform.

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